Exam 7: The Valuation and Characteristics of Bonds

SWH Corporation issued bonds on January 1,2004.The bonds had a coupon rate of 5.5%,with interest paid semiannually.The face value of the bonds is $1,000 and the bonds mature on January 1,2019.What is the intrinsic value of an SWH Corporation bond on January 1,2010 to an investor with a required return of 7%?

Federal regulations make it impossible for rating agencies to drop a company's credit rating more than two notches at a time in order to prevent panic in bond markets.

If a corporation were to choose between issuing a debenture,a mortgage bond,or a subordinated debenture,everything else equal (such as coupon rate,maturity,etc.)which would sell for the greatest price?

Convertible bonds decrease in value whenever the price of the company's stock increases.

A company with a bond rating of BBB is more likely to have which of the following qualities compared to a company with a bond rating of B?

A corporate bond has a coupon rate of 12%,a yield to maturity of 10.55%,a face value of $1,000,and a market price of $850.Therefore,the annual interest payment is

Plasma TV Corporation bonds are currently priced at $1,088.They have a par value of $1,000 and 12 years to maturity.They pay an annual coupon rate of 6%.What is the yield to maturity on this bond?

If market interest rates rise

Which of the following bond provisions will make a bond more desirable to investors,other things being equal?

Which of the following statements concerning bonds and risk is true?

In Excel,the variable PV stands for a bond's par value.

International Cruise Lines sold an issue of 12-year $1,000 par bonds to build new ships.The bonds pay 4.85% interest,semi-annually.Today's required rate of return is 9.7%.How much should these bonds sell for today? Round off to the nearest $1.

The present value of the expected future cash flows of an asset represents the asset's

Which of the following statements is true?

In general,interest on bonds,like dividends on preferred stock,may be deferred until a later date at the discretion of management,making debt financing more appealing to corporate managers.

The yield to maturity on a bond

The yield to maturity on long-term bonds

You want to invest in bonds.Explain whether or not each provision listed will make the bonds more or less desirable as an investment: call provision,convertible bond provision,subordinated debt

Two investors are considering the purchase of Corporation ABC bonds.The bonds are selling at their par value of $1,000 with a coupon rate of 9%.Investor A decides to buy the bonds and Investor B does not buy the bonds.

Suppose interest rates have been at historically low levels the past two years.A reasonable strategy for bond investors during this time period would be to